Background
Regulatory Guide 121 Doing financial services business in Australia (RG 121) provides information and general guidance on the Australian financial services regime. In particular, RG 121 sets out the obligations associated with being an Australian financial services (AFS) licensee and provides guidance as to when a foreign person or company may be required to hold an AFS license, as well as any exemptions that may apply. This new version of RG 121 replaces the guidance previously issued by ASIC in June 2013.
Key amendments to RG 121
The reissued RG 121:
- Removes outdated references to expired or repealed AFS licensing relief;
- Updates and clarifies the licensing requirement exemptions which are currently available to eligible foreign financial services providers (FFSPs);
- Provides an update on the Court’s interpretation of ‘carrying on a business in Australia’; and
- Amends descriptions and updates references to financial products and services, obligations of AFS licensees, legislation administered by ASIC, other relevant rules and legislation, and ASIC’s regulatory documents.
Updated interpretation of ‘carrying on a business in Australia’
Importantly for overseas entities, ASIC has provided further guidance in RG 121 on how the Australian courts interpret what constitutes ‘carrying on a business in Australia’. The courts have stressed it is the factual circumstances which determine whether a body corporate’s activities constitute ‘carrying on a business in Australia’. ASIC has signaled the Courts have taken into account the ‘general indicators’ of carrying on a business in Australia, which includes a consideration of the degree of system, repetition and continuity of the activities of the business.
Additional guidance from ASIC has also indicated that the nature of the business being conducted and the statutory context are also relevantly considered. For example, ASIC has noted in RG 121 a recent 2022 case (albeit this case is in the statutory context of Australia's Privacy Act which focuses on a non-material concept being information) where an offshore entity was found to be ‘carrying on a business in Australia’ by installing and removing cookies on the devices of Australian users and providing a login functionality to Australian developers for use in Australia via the Graph API interface, even though this overseas entity had no physical assets, customer or revenues in Australia and their data processing centers were not located in Australia. The importance of ASIC referring to this case in RG 121 demonstrates the Australian court's malleable approach to determining what is considered 'doing business in Australia' for online businesses serving customers in Australia, even if those online businesses have a low degree of activity in Australia
Furthermore, ASIC has updated its guidance on a one-off transaction, which may amount to the carrying on of a business, if that single transaction was in pursuance of the intention to carry on a business and even if no other transaction has been effected so far.
Other relevant amendments and updates
Various amendments and updates have been made to RG 121, in order to bring the guidance more accurately in line with the current legal and regulatory frameworks. The following are some of the relevant amendments which have been made:
- Establishing a new section ‘D – Are you exempt from holding an AFS license’, which provides an overview of licensing exemptions that may apply to foreign persons or companies;
- Updates to references to sections of the Corporations Act 2001 (Cth) and other regulatory guides, as well as the inclusion of references to regulatory instruments for further guidance on AFS license holder exemptions and obligations; and
- Broadening the scope of the definition of ‘financial product’, to additionally capture interests in a notified foreign passport fund, deposit-taking facility made available by a bank foreign exchange contracts and Australian carbon credit units.
Interaction with the proposed new licensing exemptions for FFSPs
Whilst the updated RG 121 gives welcome guidance in relation to the current status of the extended FFSPs transitional reliefs, it, of course, does not cover the proposed new licensing exemptions for FFSPs under the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (currently before the Australian Senate), which, if passed by Parliament as drafted, may come into effect on 1 April 2025. For more information on the extended FFSPs transitional reliefs and the proposed new licensing exemptions see our most recent article on this topic: Australia: Another update for the FFSP exemptions.
